Kenya to probe telcos over high cost of mobile money transactions

Kenya’s National Treasury has launched investigations into telecommunications companies it accuses of imposing excessively high rates on mobile money payments.

These rates, according to the Treasury Cabinet Secretary Henry Rotich, have caused the government to suspend its mobile-based bond trading programme, intended to promote small investors with as low as Ksh3,000 ($30) to invest.

The EastAfrican has learnt that the government is seeking to scrap and reduce some of the charges levied on the M-Akiba bond in order to attract more players. M-Akiba is the first-ever Treasury bond to be issued exclusively via a mobile phones.

Mr Rotich said that the government postponed the launch of the mobile-based bond after it learnt that the “cost of trading the debt instrument would be too high for investors, and would wipe out all their returns.”

The recent investigation targets mobile payment service providers Safaricom (M-Pesa), Airtel (Airtel Money), Telkom Kenya (Orange Money) and Equity Bank (Equitel).

The move comes amid concerns by the Consumer Federation of Kenya (Cofek) that mobile payment service providers are levying excessive and undisclosed levies.

Mr Rotich said the probe, expected to be completed in December, seeks to establish the justification for the amount of fees and commissions levied on various mobile banking transactions, and the portion that the telcos and banks exact from each transaction.

He said telcos must disclose all hidden charges in mobile payments to their customers and that this “disclosure” requirement forms an important part of the government’s ongoing review process.

“We want to know how much these firms actually charge for each service and how much each party in the transaction is getting. This exercise should be concluded in December,” said Mr Rotich.

Disclose hidden charges

The Competition Authority of Kenya (CAK) director-general Kariuki Wang’ombe said they were working to ensure that mobile payment services are transparent.

“Nothing should be regulated in a market where there are many players,” said Mr Wang’ombe.

Last year, CAK ordered Safaricom to make public its Lipa na M-Pesa charges for businesses after receiving complaints over the telco’s failure to disclose the amounts consumers pay for use of the service in merchant shops.

However, Safaricom said it would need until mid-2017 to start disclosing its hidden charges.

The government is considering offsetting part of the costs of trading in bonds through mobile phones as part of efforts to empower small investors and promote a savings culture, which currently is as low as 11 per cent of GDP.

The National Treasury said inflated costs, including brokerage commissions, have made the proposed trading of M-Akiba bonds unprofitable to small investors.

“We are working on it with our debt department. We had called key stakeholders to discuss this issue because high charges will make M-Akiba unattractive,” said   Geoffrey Mwau, director-general at the Budget, Fiscal and Economic Affairs Department in the National Treasury.

He added: “There are many solutions to this problem because these charges are at two levels: We have the M-Pesa charges and the transaction fee. The idea is to eliminate one of them and also consider lowering the charges by introducing an element of competition, but these plans are still at the preliminary stage.”

Currently, the transaction fee for a bond trader stands at 0.03 per cent of the value of the transaction.

This consists of a net brokerage commission of 0.024 per cent, Nairobi Securities Exchange levy of 0.004 per cent and Central Depository and Settlement Corporation (CDSC) levy of 0.002 per cent.

Money transfer charges through Safaricom’s M-Pesa platform are effected from a minimum of Ksh100 ($1) to Ksh70,000 ($700) per transaction.

M-Pesa commission

The mobile money payment service through its Lipa na M-Pesa platform charges traders one per cent commission for receiving money through the channel but customers pay different fees for using the service.

The government plans to implement the mobile-based bond issuance programme in partnership with M-Pesa in order to deepen access for retail bond trading, which was previously a reserve of commercial banks and other traders such as pension funds, fund managers and insurance companies.

Retail investors account for a paltry two per cent of the Treasury bond market with institutional investors controlling 98 per cent.

“Investments are often made in trusted institutions and commodities.  It’s perfectly normal to have a transaction or investment fee taken at the beginning, or even a tax like a stamp duty, but it doesn’t stop people investing. As the investment hopefully accumulates, the costs are recovered as well as the growth over and above the initial investment,” said the chief executive of Liquid Telecom Kenya, Ben Robert.

He added: “There must be other factors behind the mobile investment bond isn’t hitting the right space, and the people that want to invest in small transaction amounts of a few thousand shillings are probably investing in areas their investment matures faster, or those that give them a stronger feeling of security and growth.”

The government lowered the minimum threshold for investment in Treasury bills and bonds from Ksh50,000 ($500) to Ksh3,000 ($30), with investors allowed to trade through their mobile phones, with effect from July 1, 2015.

Uganda has set the threshold for buying a Treasury bill or Treasury bond at Ush100,000 ($27), though the bond market is still controlled by commercial banks followed by the national pension fund and offshore investors.

In Tanzania, primary dealers and direct investors with bids of Tsh5 million ($2,241) and above are eligible to participate directly in the Treasury bonds auction while investors with bids below Tsh5 million ($2,241) must channel them through primary dealers.